Jim MacInnes – Full Cost Accounting

Transcript:

energy-101.org : What is full cost accounting?

Jim : Full cost accounting is really a total accounting, much more than the actual outlays that one might make. It’s the hidden cost. It would be the externalities. It could be overhead and indirect costs. It could be past and future costs. And really what I would call a life cycle cost of a project or a product.

energy-101.org : Is my electric bill an accurate reflection of the cost of energy?

Jim : Well, all the costs of electricity are not really included in the electric bill because there are a lot of social costs, health costs, lost work-day costs. We have costs relating to climate change, which can be increased insurance costs or damage to property costs. And then you have the costs of all the subsidies for fossil fuels that power a lot of our energy production. So those costs are really spread throughout society through our taxes. So you don’t see those costs in our day-to-day electric bill.

energy-101.org : Tell me a little bit more about this idea of not accounting for the idea of carbon in the transaction.

Jim : Well, as I think most people know, when you burn carbon, you put that carbon into the atmosphere and into the carbon cycle, and it stays there for hundreds of years. So that actually helps to make global climate change even worse. The result of that is that the atmosphere contains a lot more energy, a lot more heat, and the heat causes a lot more volatility in the climate. For example, you’ll have more snow events and heavy rain and severe weather events, which can cause a lot of damage to buildings and that sort of thing. So the insurance industry is watching this very closely, because they’re the ones that have to pay for damage due to weather. They’re going to have to actually increase their rates over time to be able to pay for these damages.

The other problem with climate change and warming the atmosphere is it’s causing the glaciers to melt and raising the level of the water of the ocean. Over time that’s going to cause a lot of problems because we have a lot of buildings and commercial structures and residential structures on the coasts, and those are going to become unusable basically. So there’s going to be a tremendous loss, economic loss there.

So really climate change has several severe economic penalties that we’ll all be paying.

energy-101.org : What’s a subsidy, and how are they used for the energy industry?

Jim : The fossil fuel industry is very heavily subsidized as identified by the International Energy Agency. And this is a result of tax breaks that the fossil fuel industry gets for drilling for oil or for natural gas, exploration, taking coal out of the ground. And really those subsidies are funded by all of us as tax payers.